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It’s taken me 10 years, through thousands of mistakes and a couple good decisions, to write this post.
Here are five things that I would do if I were doing a venture-backed tech startup today….
1) I would work with a technical person to build my product.
✅ Startups that have a technical person at the outset have an order of magnitude difference in progress than startups that don’t. ✅
The key in startups is speed. Speed to hypothesize. Speed to build a feature around that hypothesis. Speed to experiment in the market in real time. Speed to learn and iterate again.
The speed in startups comes the velocity of putting together mini-product experiments to see which product should be built.
In my FinTech, startup, we used founder funds to hire a software development firm to build out our MVP. One year and $242,000 later, we had a working MVP that didn’t satisfy the needs of the customer. There was little experimentation in my case because the arc of our MVP was tied to a third-party developing our product.
As an investor, if you were to step into my mind, you’d see that there is a major single difference from startups that scream into the market and the ones that stagger into the market - it’s a technical person being able to build from the beginning. I’ve seen founders with an otherwise great idea totally handicap their progress by not having a tech person by their side.
Now, this could be a co-founder, but doesn’t need to be. It could be a high caliber computer science college student that you pay nights and weekends to build an MVP. It could be a friend that is a strong coder that wants to take on a side gig.
Find a technical person who is competent, has capacity, trustworthy, and has passion for what you’re doing, and get building. Get to market, iterate, and repeat. Don’t get hung up on a getting a “technical co-founder.”
If you are wondering about how to think about compensation for that person, check out the article I wrote on “How NOT To Give Away Too Much to the Wrong Person.”
2) I would be laser focused on a specific problem use case, first
Many founders are naturally too high level in the problem that they solve. So, they build an overly general product that doesn’t solve anyone’s problem.
I once wrote about the three levels of a market problem - the Google Earth view, the Google Maps view, and the Google Street view. See my LinkedIn post for reference.
The "Google Earth-view" 🛰️ problem - This is the big change that the startup wants to want to see in the world. It’s the 10 year vision. It often involves industry-changing language or vision-related language.
The "Google Maps-view" 🦅 problem - Where the focus zooms in, similar to the map focus on a smaller geographical area or neighborhood. The startup sees a series of problems in a given company or industry and that need to be solved, and decides to solve all of them at the same time.
The “Google Street view” 🚘 problem - This is a super narrow, use-case specific problem. Here is the key - this is the market entry point of your startup.
In my FinTech startup, we were way too broad in the problem we were solving. In fact, we started with a problem statement that a customer described as, “I want a system that tells me which bonds to buy and sell everyday.” In retrospect, that statement is devoid of the ideal customer profile. It’s devoid of any layers of details that actually matter on what solving the problem looks like. This potential customer was expressing a Google Earth view of the problem - how this person wanted bonds to be traded in the future.
But startups, out of the gate, de-risk themselves by building to a Google Street view, narrow use case of the problem.
✅ I define a specific use case as an action that has a tightly defined start time and a tightly defined ending time for one person (customer/user). ✅
Furthermore, if this action has a high frequency of occurrence, then you might just have a solid use case on your hands. ✅
So, startups should be looking for defined start and defined ending points in time to build their product around. They should not start with solving an entire workflow. (That is the Google Maps view)
Why a use case? Because solving for one use case shrinks the size of the product needed to start solving a problem. (See the emphasis on speed in #1 above.)
In the words of your customer, a use case sounds like, “When I do X (specific action), every time I have to do XYZ, and it’s __adjective that describes the pain____.”
The “When I do ________” phrase often communicates a potential use case to go after.
3) I would have a co-founder with a divergent skill set to me
It’s important to be divergent across two facets - big picture vs. detail orientation and skill set.
Big Picture vs. Detail Orientation
I am a strategic, big picture thinker. One of my advisors told me early on, “All of the things that happen in running a startup are tactical. A million tactical mistakes become a strategically significant error. If you’re doing the same thing a million times, tactics become strategy. You need to own that level of obsessive detail, or someone in your company needs to own that level of obsessive detail.”
The problem was, my co-founder (also my father), was a big picture thinker too. Two big picture thinkers paired together resulted in a lot of haphazard and incomplete execution.
There has to be one co-founder with a big picture orientation, and one with a detail orientation that move together in harmony to put tactics to the strategy.
✅ On the co-founding team, there needs to be someone with a complementary orientation. ✅
Skill Set
I covered the most important skill set piece in #1 above.
I occasionally see founders with very similar backgrounds - e.g. both formally in business development, bringing the same network, and the same industry expertise. Typically, that’s not a tenable solution long-term. One founder will either depart or will be asked to leave by investors because of the redundancy of the skill set.
Co-founders work best when there is tremendous complementary to their skill sets and expertise. Duplication of skill sets as often is wasted equity and wasted oxygen for the startup.
(As an aside, solo founding is crazy hard. Building a startup is lonely. The solo founders that I’ve seen do well have investors or advisors that communicate with each other so frequently its as if that person is a full time co-founder.)
4) I would be fluid with cap table management
✅ Cap table math and management is to venture capital what addition and subtraction is to mathematics. ✅
By cap table, I’m referring to the list of the equity owners of the company and what dilution each one experiences over time.
When I was a founder, I did not have a strong grasp on how different valuations affected the equity of the company. (Probably was my big picture orientation at play - see how that counter-balance matters?)
Being totally transparent, for me, equity and cap table management was like picking numbers out of a hat - “This sounds good. I guess…”
Because of this poor approach:
When I signed the SAFE agreement for our pre-seed investment, I didn’t have a great understanding of the mechanics of valuation nor how that affected our potential next round raise, let alone the dilution of my grandfather who invested a year and a half earlier at a higher valuation. 😐
I offered a whopping 14% to a part time strategic CTO that didn’t have the technical chops to code.
I was going to offer 6% to someone else, but I didn’t make the offer because we saw that we were going to shut down.
When discussing valuations with potential lead investors, I didn’t have a sense for how to benchmark the equity discussion and what was fair.
At the time, I asked myself, “Does this cap table stuff matter?” Instead, I reasoned, “I don’t have time to slow down and learn cap table stuff. I’ve got to build a product, I have customers to sell to….”
And yet, now as an investor, a messed up cap table can be the one deadly nail that makes an investor pass, even if everything else in the company is up and to the right. See article of Why We Passed on This Startup (Episode 3)
Heed my founder experience as a red flag waving at you 🟥 🟥 🟥.
Not understanding the basic mechanics of cap tables, valuation implications, etc. is like not learning basic addition and subtraction in mathematics. You’re fooling yourself if you think you can get by without knowing what’s going on.
5) Execute like venture capital is a means, not an end
In social media age, for some, raising venture capital seems to have become a point of identity validation.
Especially with first time founders, this is incredibly alluring. It’s this sense of, “We’ve raised from venture capital investors. We’ve done what less than 2% of people can do. We’ve made it.”
Listen. There is no glory in raising venture capital.
With all of the founders that Tundra Angels has invested in, after closing a funding round, they give a couple high fives and then get back to work. They treat venture capital as an accelerant to what is already working well, not a destination.
What ultimately matters is building a long-term successful company. That is in best interests of all stakeholders.
Closing Thoughts
My ultimately recommendation is:
Go as far as you can downfield without raising venture capital with the above three things:
Working with a tech person from the outset,
Solving a narrow use case in the market, and
Ensuring there is complementary orientation and skill set to any co-founder that a startup brings on.
When it comes time to give or sell equity to venture capital, make sure you are fluid with cap table management.
Execute as venture capital is a means, an accelerant, not an end in itself.
In startups and venture capital, it’s not really about doing it “right,” because right is highly subjective. It’s more about following guiding principles that prevent you from driving into the ditch.
I hope these five tactics help founders stay on the road - because it’s a fun and worthwhile journey. 😀
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